ST. LOUIS (MineFund.com) -- We're pleased to announced the launch of two new MineFund.com Gold Indices - the MineFund World Gold Price Index (WGI) and the MineFund Commodity Gold Price Index (CGI). Interactive versions will be available later this year.
The World Gold Price Index (WGI) is a GDP weighted basket of the most liquid global currencies. In other words, you can walk into almost any bureau de change and be able to exchange one country's piece of paper for the other. By placing the currencies in a basket and weighting them by their gross domestic product we have developed a proxy for the gold price that is not just dependent on the US dollar.
The weakness at this point is that the GDP data is static, but we are developing an alternative that will adjust the weighting's yearly to provide a more balanced long-term view.
The World Gold Price Index has soared in nominal terms, easily eclipsing the January 1980 highs. However, once adjusted for inflation, the WGI would have to nearly double from last month's level to take out the all-time record high in real terms. Never say die - May's level finally pushed past the 1983 spike for the first time in the current bull run.
The stirrings of a speculative ramp are also evident in the +30% gain in the index since early 2009, though the primary driver was an incredible flip in interest rates which turned aggressively negative.
The euro is presently driving most of the WGI's performance as contamination from the bailout of Greece continues to spread.
Weighting data and additional charts available here.
The Commodity Gold Price Index (CGI) comprises the most liquid "commodity currencies". By commodity currency simply means that a money's value is determined in large part by commodity exports and beneficiation based on the country's extractive industries.
Weightings are based on the export value (in USD) of the following hard commodities:
- Iron ores & concentrates; including roasted iron pyrite
- Manganese ores and concentrates et
- Copper ores and concentrate
- Nickel ores and concentrate
- Cobalt ores and concentrate
- Aluminum ores and concentrate
- Lead ores and concentrate
- Zinc ores and concentrate
- Tin ores and concentrate
- Chromium ores and concentrate
- Tungsten ores and concentrate
- Uranium or thorium ores and concentrate
- Molybdenum ores and concentrate
- Titanium ores and concentrate
- Niobium, tantalum, vanadium or zirconium ores and concentrate
- Precious metal ores and concentrate
- Other ores and concentrates
The weightings for the real and peso were reduced to compensate for their relative lack of liquidity and standing. The Index excludes the real until January 1995, and the peso until November 1995.
Investors will immediately note that the commodity currency basket came very close to taking out the inflation adjusted level from January 1980. That's principally because Canada, Australia and South Africa didn't suffer similar levels of inflation compared with the US. However, the collapse in demand allied with a flight to liquidity and quality in 2008-2009 placed enormous stress on the commodity currencies, which pushed the CGI to within 5% of the all-time high.
Those stresses have returned as investors hoard dollars and fear another downward inflection in raw materials demand. That said, it is notable that the WGI and CGI are tracking closely again, reflecting the growing maturity of the commodity currencies as viable alternatives to the traditional big guns of world trade.
What is clear is that gold, at least in the nominal terms that most retail investors see, is handily outperforming the assets it was supposed to be inferior to - over virtually ever duration. Whilst an equity portfolio that remained fully invested since 1980 has smashed gold, there are very few investors who boast that level of endurance. Rather, the incoming waves of retiring Baby Boomers are looking at portfolios of 20 years if they were diligent; and they certainly did not front-load their purchases.
Instead, many were probably peaking their contributions around the dot . com bubble and they are now sitting on hefty losses. And all the while advisors were telling them what a dog of an investment gold was.
Weighting data and additional charts available here.
